Eurasian Economic Perspectives

Table of Contents

1. Frontmatter

2. Accounting/Audit

   1. Frontmatter

   2. The Impact of Free Cash Flow on Firm’s Performance: Evidence from Malaysia

      Elaine Kok Suit Lai, Ahmed Razman Abdul Latiff, Ooi Chee Keong, Tong Chue Qun

      Abstract

      The objective of this chapter is to investigate the impact of free cash flow (FCF) on a firm’s performance. This research is using the data from 2013 to 2017 from Malaysia and various industries as the moderating variable. Whereas, firm performance is measured by operating performance, firm value, and stock return as the dependent variables. All the explanatory variables are tested as whether they have any significant relationship on the firm’s performance as the dependent variables. The firm performance is measured by the company’s accounting performance, which measured by return on asset (ROA) and return on equity (ROE), firm value is measured by Tobin’s Q and the stock return measure by stock price. The data collected are categorized into five different industries, which include finance, plantation, industrial products, properties, and consumer goods. This chapter utilizes panel data regression for testing the hypothesis and the results indicated that some do not support the hypothesis. The findings point out that FCF as the independent variables has a significantly negative relationship with the firm’s performance, measured by ROA and Tobin Q. Besides that, there is a positively insignificant relationship between ROE and stock return on FCF.

   3. The Analysis of the Appliance of Fair Value Concept in Croatian Companies from Real Sector

      Hrvoje Perčević, Mirjana Hladika, Ivana Valenta

      Abstract

      The fair value concept, as a prevailing measurement base in contemporary financial reporting, is introduced by International Financial Reporting Standards (IFRSs) and is also implemented in Croatian Financial Reporting Standards (CFRSs). The basic aim of this chapter is to identify to what extent Croatian companies from real sector are using fair value concept for measuring assets and liabilities. In order to fulfill the basic goal of the chapter, the research regarding the implementation of fair value concept is conducted in Croatian companies from real sector in 2016. Research sample was constituted of 100 Croatian companies from real sector. The sample was created by random sampling and each company had the same probability of selection. The research is carried out through the analysis of companies’ accounting policies disclosed in notes to the financial statements. Research results confirm that Croatian companies from real sector mostly apply cost concept in regards to fair value concept. Research results have also indicated that fair value concept is mostly applied in measuring land, properties, plant and equipment, biological assets, and financial instruments, although, its application is not widely used among Croatian companies from real sector.

   4. The Link Between Accounting Measures of Biological Assets and Financial Standing of the Agricultural Enterprises: Evidence from Lithuania

      Neringa Stonciuviene, Danute Zinkeviciene, Dalia Juociuniene

      Abstract

      The purpose of the research is to assess the impact of the choice of biological asset measuring method on the financial standing, overall performance, and financial attractiveness of the agricultural enterprises. The analysis of scientific research studies shows that there is no preference given for one of the methods in the measurement of biological assets—cost or fair value less estimated costs to sell. The advantages and disadvantages of both methods are disclosed in this research. The case study is based on analytical data of agricultural enterprises, which are specializing in livestock farming and applies cost method to measure biological assets. The impact of the change in the measuring method on key financial ratios was calculated. Financial performance improves when using the fair value method compared to the cost method. However, a risk of violation of the principles of prudence and neutrality was noted. For this reason, the conclusion was made that the cost method is more relevant for measuring biological assets.

   5. The Impact of Fair Value Concept Appliance on Corporate Profit Tax: Case of Croatian Companies from Real Sector

      Danimir Gulin, Hrvoje Perčević, Marina Ercegović

      Abstract

      The application of fair value concepts in measuring company’s assets and liabilities results in corresponding accounting and tax effects. The main objective of this chapter is to analyze the interdependence between the accounting effects of the fair value concept application and the corporate profit tax on the case of Croatian companies from real sector for the period from 2010 to 2016. The research was carried out of 96 large-sized companies, and 369 medium-sized companies, which make a total of 465 companies. The data needed to achieve the purpose of the chapter are collected from publicly available financial statements of Croatian companies from real sector in the period from 2010 to 2016. The interdependence between accounting effects of the fair value concept application and corporate profit tax liability are analyzed by regression analyses. According to the research results, descriptive and inferential statistics, it can be concluded that fair value concept is not widely used in Croatian company’s from the real sector for the period observed. Therefore, the accounting effects of the fair value concept cannot have high impact on corporate profit tax liability. According to the regression analysis, only the model for the deferred tax liability is good with one significant variable.

3. Empirical Studies on Emerging Economies

   1. Frontmatter

   2. Effect of the Time to Maturity on the Risk of the Covered Call Strategy

      Ewa Dziawgo

      Abstract

      This chapter illustrates the selected issues connected with the covered call strategy: the strategy design, the impact of certain variables (the price of the underlying asset and time to expiration (maturity) on the performance of the values of the ratios delta, gamma, vega, theta, and rho. These ratios are the risk measures and are very important in risk management of the option transactions. They determine the influence of changes in the risk factor on the price of the option. The aim of this study is to present an analysis of the effect of the time to expiration on the value and the risk of the covered call strategy. The chapter uses the methods of mathematical analysis. The empirical illustration shown in the chapter is presented based on the currency options (on EUR/USD) pricing simulation. The simulation was carried out for the period 02.01.2019–15.03.2019. The results indicate that all measures values of the risk of covered call strategy are significantly volatile over time.

   3. In Search for a Connection of Selected Variables on the Formation of Tax Gap in Personal Income Tax: The Example of Poland

      Alina Klonowska

      Abstract

      The subject of the study is the income tax gap paid by natural persons in Poland. The study was conducted to determine the impact on the tax gap of changes in the number of income tax payers, the number of enterprises with foreign branches, and the number of enterprises employing up to 9 people. The study hypothesized that changes in the number of income tax payers, as well as the number of enterprises have a significant impact on changes in the level of tax gap. To test this hypothesis the Pearson correlation coefficient was applied in the study. The study period covers the years 2008–2015. Studies have shown that changes in the number of taxpayers such as entrepreneurs or persons employed on the basis of an employment relationship indicate a tendency to change in the scope of the tax gap. No significant relationship was found between the parameters concerning enterprises and the size of the tax gap. The research is unique for being the first empirical study of its type in Poland.

   4. Penalised Quantile Regression Analysis of the Land Price in Japan by Using GIS Data

      Yuya Katafuchi, Augusto Ricardo Delgado Narro

      Abstract

      Land price analysis remains one of the active research fields where new methods, in order to quantify the effect of economic and noneconomic characteristics, continually push knowledge frontiers up. Nevertheless, so far, most of the research focus on measuring the causal effect to the mean value of land price by ordinary least squares (OLS) method, despite the possibility that covariates might affect the land price differently at each quantile, that is, causal effects might depend on the quantile of the land price distribution. Furthermore, most of the literature highlights the effect of a few accessibilities, building characteristics, and amenities over the land price by using limited survey data even though the development of geographic information systems (GIS) improves accessibility information to various facilities by positioning properties on the map in terms of their geographic coordinates and provides larger dataset. To identify the heterogeneous causal effects on the land price, the chapter applies the Quantile Regression (QR) method to the land prices function, using GIS data in Japan including micro-level characteristics in 2017. As the number of covariates is large, penalized QR method by regularization helps us to obtain more accurate results in variable selection. We find that QR with GIS data is crucial to obtain detailed relationships between micro-level covariates and land price since GIS data explains that non-macroeconomic variables cause the land price heterogeneously at each quantile. For example, the distance from a medical facility causes a negative effect on the land price; furthermore, this effect is magnified for upper quantiles.

   5. The Effect of Fixed Investments on Lithuanian Economy

      Lina Martirosian

      Abstract

      Aim of the research is to provide the theoretical backgrounds for significance of fixed investments, to estimate the changes of fixed investment growth and structure and to explore the efficiency of fixed investments and it impact on Lithuania economy. The research show that the level of investments in Lithuania was 21–29% from GDP in 2001–2008. Over the last 7 years (2011–2017), investments amounted to 19% of GDP on average. The growth of investments after the financial crisis is especially high in equipment sector. It is noticeable that many Lithuanian businesses still hesitate when it comes to making important investment decisions. Firstly, uncertainty in the market causes troubles in evaluating future changes of products and services demand. Secondly, companies seek to accumulate own funds to implement investment projects in order to avoid credit liabilities.

   6. New Empirical Evidence on the Purchasing Power Parity from VISEGRAD Group Countries

      Martin Pažický

      Abstract

      The aim of this chapter is made to test the validity of purchasing power parity (PPP) between the Slovak Republic vis-à-vis the member countries of Visegrad Group using Augmented Dickey-Fuller (ADF) test for unit root and various techniques inspecting the presence of cointegration (i.e. the Durbin-Watson, the Engle-Granger and the Johansen procedures). Applying both the Engle-Granger and the Johansen methods, we found evidence of PPP between the Slovak Republic and Hungary and between the Slovak Republic and Poland, which is consistent with the economic theory. The existence of the long-run relationship was confirmed by the vector error correction model (VECM). However, we have not found any cointegrating vector in the case of the Slovak Republic and the Czech Republic, which rejects the existence of a persistent long-run equilibrium between exchange rate, domestic prices (i.e. in the Slovak Republic) and foreign prices (i.e., in the Czech Republic)

4. Finance

   1. Frontmatter

   2. The Strategic Rationale of Mergers and Acquisitions on Emerging Markets: Evidence from Romania

      George Marian Aevoae, Roxana Manuela Dicu, Daniela Neonila Mardiros

      Abstract

      External growth operations, such as mergers and acquisitions (M&As), alliances, consortia, are often seen by the companies as a way of expending their businesses or as a way of survival. In this chapter, we identify the determinants of the acquirers for choosing one type of merger in the detriment of others, considering a classification that suits better for the Romanian merger market (horizontal, vertical, and conglomerate). The independent variables indebtedness, premium, and the motives of operational synergies, managerial optimization, and increasing the market share, were useful predictors for choosing between the three types of mergers. The proposed research hypotheses are to be tested on a sample of 718 mergers that took place on the Romanian market, in the 2014–2016 period of time. The main results will show us that the indebtedness, and the fact that the acquiring companies paid a premium have the most significant influence on the type of merger chosen by the acquirer, given the fact that, in our sample, many acquirers register a negative book value of equity. Despite the fact that, on the Romanian market, many of the companies decide not to record a premium, its influence is significant for all types of mergers.

   3. The Influence of a Group Purchasing Organization on the Management of Company Receivables

      Grzegorz Zimon

      Abstract

      Receivables management is a key element affecting the financial security and profitability of companies. The policy of managing receivables is a very sensitive issue and should be well thought out. Large opportunities in this area appear in companies operating in purchasing groups. Joint operation allows applying certain tools that effectively enable to manage our receivables policy. The purpose of the chapter is to present strategies and tools that facilitate the management of receivables in companies operating in purchasing groups. The chapter aims at presenting and explaining the influence of the purchasing group on receivables management. The analysis of the receivables management strategy was presented in a group of 35 Polish companies. The research period covered the years 2014–2016. Companies subject to research were commercial companies whose revenues ranged from PLN ten million to PLN 100 million. The analysis of the receivables management policy in companies was carried out on the basis of literature and using the initial and indicative financial analysis. The conducted analysis showed how the purchasing group influenced the policy of managing receivables in companies forming purchasing groups.

   4. Anonymity in Cryptocurrencies

      Hulya Boydas Hazar

      Abstract

      Cryptocurrencies are defined as anonymous digital currencies. It is widely assumed that the real-world identities of the persons who engage in cryptocurrency transactions are secret and will remain secret. Digital signatures serve as identities of the parties involved in cryptocurrency transactions. They are essentially composed of a pair of keys, the secret key and the public key, which are used for signing transactions. These keys are issued as many times as needed thus creating different identities for the same person. Since transactions are recorded with these pseudo names, it is thought that the real identities may not be linked to the transactions. Unlinkability has to be achieved for complete anonymity. However, recent studies show that real-life identities can be linked to addresses of these cryptocurrencies and transactions which use them. Therefore, it is safe to say that most cryptocurrencies are pseudonymous rather than anonymous. In this chapter, the problem with anonymity and its implications in accounting will be discussed. In addition to this, protocols and services, which make it harder or even impossible to link addresses and transactions to their senders and recipients, will be reviewed.

   5. Preferences of Individual Investors from Different Generations in Poland in Terms of Socially Responsible Investments

      Dorota Krupa, Leszek Dziawgo, Michal Buszko

      Abstract

      The purpose of this chapter is to present the approach and attitude of different generations of individual investors to socially responsible investments on the financial market in Poland. We use critical analysis of literature, statistical data analysis, as well as description and comparison methods. The study shows that there are differences between individual investors with different generations (Baby boomers, Generation X, and Generation Y) in their approach and attitude to social responsibility in the financial market. The Baby Boomer Generation is more likely to declare a socially responsible attitude when making investment decisions compared to younger generations.

   6. Deposits as a Key Source of Financing Cooperative Banks: The Deposit Activities of a Group Cooperative Banks in Poland

      Maria Magdalena Golec

      Abstract

      Cooperative banks, similarly to other credit institutions, obtain financial resources from entities with finance surplus and satisfy the needs of those entities, which suffer from financial deficits. In comparison to commercial institutions, it is the large and stable deposit base, which is crucial for financial performance of cooperative banks. The aim of this chapter is to examine the scale and structure of deposit activities of cooperative banks as compared to the activities of other banks in Poland in 2015–2017. Taking into account selected group of cooperative banks, the second objective is to specify the factors that affect the structure of deposit activities. The study uses quarterly financial data from the years 2009–2016 of a selected group of 75 cooperative banks in Poland. Cooperative banks in Poland use deposits as a source of financing their activities to a greater extent. Cooperative banks tend not to use interbank deposits, but the local government sector is an important source of financing for them. Based on the econometric panel models, it was found that the increase in the share of deposits from the nonfinancial sector in assets is positively affected by the increase in lending, while the negative dependence is on the scale of operations.

   7. Economic Analysis of Recent Laws on Corporate Reorganization Methods in Hungary

      Éva Pálinkó, Kinga Pétervári

      Abstract

      This chapter is based on primary research focusing on the effect of bankruptcy regulatory changes in Hungary after the 2008 global financial crisis. It studies the attitudes of Hungarian companies toward reorganization possibilities in a creditor-friendly environment and examines the outcomes of the new procedures. The conclusion is that the financial variables are seemingly irrelevant in decision-making. The bankruptcy procedure has become a useful tactic for the owner-management to keep their position and protected status as long as possible even at the expense of the divergent creditors. In a bank-based financial market, dwelled by mostly small enterprises not listed at the stock market, information is a precious commodity even for banks, let alone other creditors. The chapter’s conclusion is that there is a genuine need for a different model for bankruptcy procedures in Hungary. A model in which financially rational decisions is not dysfunctional. We find that time is the most important factor here. It is therefore suggested that the rules should be designed so that the companies be motivated to file for bankruptcy in time. This design is the automated mandatory auction bankruptcy procedure or its pre-pack version.

5. Public Economics

   1. Frontmatter

   2. The Impact of Legislative Policies on the Judicial Reorganization Procedure and the Risk of Illegal Financing in Romania

      Simona Petrina Gavrila, Tudor Florin

      Abstract

      The purpose of this study is to analyze the judicial reorganization process in Romania and how the state supports the companies in financial difficulty. Judicial reorganization has been created as a legal tool for traders in insolvency but whose businesses are capable of overcoming difficult times. In line with the European vision, in order to give firms in difficulty a second chance, the Romanian legislature adopted a normative act aimed at facilitating access to this second chance for traders. Almost 5 years after the adoption of this law, although it was considered to be one of the most progressive European laws in the matter, following the tendency of traders to use judicial reorganization for the purpose of disregarding budgetary obligations, but also the risk of financing illegal activities in the field of organized crime, the Romanian legislature wants to amend legislation in the sense of to guarantee the recovery of these budgetary obligations. On the other hand, the proposed legislative amendments do not respond to the criticism of the insolvency practitioners regarding the adoption of fiscal measures capable of actually encouraging judicial reorganization.

   3. Socioeconomic Determinants of Health Status Among Older Adults in Poland

      Magdalena Kludacz-Alessandri, Małgorzata Cygańska

      Abstract

      One of the basic needs of the people is good health that is central to human happiness and well-being. The aim of the study was to investigate the health status of older adults (persons aged 50 years or higher) from Poland and to identify the factors affecting their health among sociodemographic and economic characteristics. The source of information used in the study was the panel data from wave 6 of SHARE (the Survey of Health, Aging, and Retirement in Europe). This database contains micro data from over 120,000 interviews with people over 50 years old from most of the EU countries and gives a broad picture of their health, socioeconomic status, life satisfaction, social, and family networks. The main methods used in this study to calculate the associations between socioeconomic determinants and health were the analysis of correlation and multiple regression. The findings showed that among the strongest determinants of health status of elderly in Poland are mainly various socio-demographic factors, such as education and job situation for the subjective dimension (self-esteem) of physical health; age and BMI for the objectivized (frequency and type of recognized health problems) physical health status; and marital status, gender, and education for mental health. We did not find any relationship between economic factors (income and property) and health status.

   4. The Strategic, Cognitive, and Institutional Perspectives of Transparency: The Meijer’s Model Applied to Italian Local Government

      Eleonora Cardillo

      Abstract

      Public administrations are introducing managerial innovations, accounting and control systems into their organizations to enhance economic, financial, and organizational performance. Transparent communication is an important vehicle to increase the accountability of public administrations toward the community, contributing to a lasting development of the degree of credibility and trust toward the institutional system. Transparency generates the basis for social control, consensus building, and networks between public organizations and stakeholders, but also requires greater openness to the external context. This study investigates transparency processes in public governments, highlighting their complexity and the effects on the activities of open governments. To analyze the managerial approach to transparency, we have adopted Meijer’s model (Public Administration Review, 73, 429–439, 2013). The model studies transparency in public organizations from a strategic, cognitive, and institutional perspective and the way in which it is developed through the interaction between governments and stakeholders. The results show how power games, cognitive frames, and institutional rules influence the creation of government transparency. They highlight the importance of analyzing their interrelation in order to gain a better understanding of the complex dynamics of transparency in open public organizations.

   5. The Role of South African Universities in Driving Sustainable Development: The Student’s Perspective

      Tshedu Matiwaza, Suvera Boodhoo

      Abstract

      Students are seen as future decision makers and leaders of tomorrow. Therefore, this study addresses student perceptions of sustainable development. As universities are instrumental in educating future leaders and decision makers, it is imperative for universities to play a critical role in educating students to carry out research that facilitates sustainable practices. This study is conducted to determine the factors influencing student perceptions of sustainable development, especially their perceptions of environmental development, economic development, and social development. The study focuses on postgraduate students studying at a South African university. In addition, the study investigated how the university addresses sustainable development through teaching in order to equip students to be responsible and sustainability-conscious individuals. The study adopts a quantitative research design and makes use of factor analysis to assess the quantitative data. The results indicated that students view education and social development as key to sustainable development. However, it is evident that more emphasis needs to be placed on economic and environmental development through the enrichment of curricula.

6. Regional Studies

   1. Frontmatter

   2. The Economics of the European Union from the Efficiency and Fairness Viewpoints

      Toshitaka Fukiharu

      Abstract

      The aim of this chapter is to examine the reason why the idea of the EU was created from the purely economic viewpoint, and show the reason why Brexit occurred. So far, the EU has adopted the integration of markets. It has the second stage of the integration of defense. This strategy is named the EU process. Theoretically, there exists another strategy, named the reversed-EU process, which starts with the integration of defense, proceeding to the integration of markets. In order to achieve the intended aim, we compare the two processes, by constructing a three-country economic model with public good. We have the following result. On the one hand, for the EU process, the efficiency probability that each integration is consecutively Pareto improving is 100% and the fairness probability that by each integration the Gini coefficient consecutively declines is almost 100%. Meanwhile, for the reversed-EU process, the efficiency and the fairness probabilities are less than 50% each. This result constitutes the purely economic reason why the idea of the EU process was created. It is shown that the above result requires the identity assumption of the three countries’ economic structure, which is the reason why Brexit occurred.

   3. Stages of Development Hypothesis in a Globalised World

      Konrad Sobanski

      Abstract

      The chapter tests the stages of development hypothesis for the balance of payments (SDH) in the years 1992–2016. We use data for 80 economies that are divided into five income groups. The research method includes regression. Our study yields yet limited support for SDH. The curve representing the relationship between current account and income per capita is not typically U-shaped as presumed by SDH. The association seems linear and positive. Developing countries whose income per capita is closer to that of industrialised economies tend to run lower current account deficits. The richer a developed economy the higher its current account surplus. However, the relationship is not confirmed in a dynamic setting of panel data, which indicates a high degree of persistence in the current account in individual countries. The findings of the study prove that low-income countries are able to overcome the liquidity constraint and attract foreign capital at an early stage of their life cycle.

   4. The Economic Specificity of US Foreign Direct Investments to Selected European Union Countries

      Rasa Daugėlienė

      Abstract

      The chapter analyses practical issues regarding the economic specificity of US foreign direct investments (FDI) to selected EU countries. Therefore, four countries were selected—the United Kingdom, Germany, Belgium and Lithuania. There are plenty of tariff and non-tariff barriers to successful trade relations between the EU and the USA. The aim is to define the specificity of economic aspects of US FDI to selected EU Member States. The first task was, to analyze the legal basis of agreements that affect exports from the USA to the EU. The second task—to provide a comprehensive economic analysis of the main investment trends from the USA to selected EU Member States. The analysis starts with a description of the investment environment and continues with a presentation of the US outward FDI stock to the selected EU countries. The research methods used are a systematic overview of the history of investment relations between the EU and the USA, and a descriptive method presenting the current investment situation between the EU and the USA, its challenges, issues and trends.

   5. Rational Choice and Market Behavior

      Truong Hong Trinh

      Abstract

      This chapter explores the value concept that is much important to define market equilibrium and explain market behaviors in the economy. Marginal principle is used to determine supply functions in the market structure that provide rational choices in production and consumption. However, rational behaviors are criticized on its being of the underlying assumptions, in which the neoclassical theoretical models cannot justify and describe actual market behaviors. For that reason, endogeneity and exogeneity are considered in the market equilibrium model that provides a better explanation on market behaviors in reality. The chapter contributes to the theory of market equilibrium and provides a testable theoretical framework on market behaviors.

   6. The Composition of the European Parliament During the 2019–2024 Term in Light of Legal Provisions and the Rules of Fair Distribution

      Janusz Łyko, Ewa Łyko

      Abstract

      When legal or social norms allow for more than one way of distributing benefits or obligations, there emerges a problem in practical applications of how to choose one solution from a large number. Depending on the adopted solution, some agents participating in the distribution can enjoy a privilege at the cost of others. This problem has become considerable in practice since the Treaty of Lisbon introduced the principle of degressively proportional allocation of seats in the European Parliament. This regulation allows many feasible solutions, while no precise and transparent method of allocation has been developed depending on the numbers of populations in member states. The currently proposed apportionment of seats in the 2019–2024 term emerged as a result of consultations and the ensuing decision of the European Council. Therefore, a question emerges whether this allocation is fair, and if not, how much particular states are privileged. The chapter aims to answer these questions. It turns out that in many practical cases the computational complexity of the problem allows to develop algorithms indicating all feasible solutions. Hence, the intervals of potential shares can be determined for all contenders. A numerical analysis of the set of all legally feasible solutions and defining on the basis of the theory of preferences the term of agent’s privilege will make it possible to assess the proposed composition of the European Parliament for the next term. In view of the criteria presented in the Chap. 1 may argue that proposed allocation favors the countries with medium populations.

   7. Long Cycles Versus Time Delays in a Modified Solow Growth Model

      Maria João Borges, Fátima Fabião, João Teixeira

      Abstract

      In this work, we study the dynamics of Solow’s economic growth model assuming that the labor force growth rate function, n(t), is a solution of a delay differential equation. This approach is motivated by the fact that there are delays in entering and retiring an individual from the labor force, relative to its birth date. Maintaining the fundamental equation of the Solow model, which describes the dynamics of capital accumulation over time, and changing the hypothesis about the evolution of labor force growth rate, we intend to evaluate the effects on capital accumulation when taking into account labor life cycles. This means that we assume n(t) does not respond instantaneously to variations, but it is a function of previous states. For this, we introduce a time delay pattern in the labor force growth rate, by considering that a normalized labor force growth rate is a solution of a delay differential equation. We show that a cyclic behavior of n(t) can be generated endogenously by an economic model. Although in a previous work, we have already observed that if n(t) is assumed to be a T-periodic function then the solution of Solow equation is also T-periodic, the truth is that these two functions present a phase difference. Note that, this lag can readily be generated in a regular ordinary differential equation model, since it is a necessary consequence of the slow adjustment rates. In this present work, we show that the introduction of time delays in modelling n(t) generates endogenous cycles for the economy.